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Economic activity in the Eighth District increased more slowly in the period since our previous report. Manufacturing activity continued to soften, while the services sector continued to expand. Retail sales in January and early February increased over a year ago, while auto sales were flat over the same period. Home sales were mixed throughout the District, while commercial real estate market conditions continued to improve. Overall lending activity at a sample of District banks was mostly unchanged during the fourth quarter of 2006.
Contacts reported that retail sales in January and the first half of February were up, on average, over year-earlier levels. About 75 percent of the retailers surveyed saw increases in sales, while 17 percent saw decreases. Approximately 41 percent of the retailers noted that sales levels met their expectations, 45 percent reported that sales were above expectations, and 14 percent reported sales below expectations. Apparel and electronics were strong sellers, while seasonal items moved more slowly. About 73 percent of the contacts noted that inventories were at desired levels, 18 percent reported that inventories were too high, and 9 percent reported that inventories were too low. About 66 percent of contacts expect increased sales over 2006 in March and April, 21 percent expect sales to be the same, and 13 percent expect decreased sales.
Car dealers in the District reported that, compared with last year, sales for January and the first half of February were flat, on average. About 52 percent of the car dealers surveyed reported a decrease in sales, while 35 percent reported an increase. About 33 percent of the car dealers noted that used car sales had increased relative to new car sales, while 8 percent reported the opposite. Also, 38 percent reported an increase in low-end vehicle sales relative to high-end vehicle sales, while 8 percent reported the opposite. About 13 percent of contacts reported more rejections of finance applications, but 8 percent reported more acceptances. About 25 percent of the car dealers surveyed reported that their inventories were too high (mostly on high-end and new vehicles), while 17 percent reported that their inventories were too low (mostly on low-end and used vehicles). About 71 percent of the car dealers said they expect increased sales over 2006 for the next two months, 21 percent expect sales to be the same, and 8 percent expect decreased sales.
Manufacturing and Other Business Activity
Manufacturing activity slowed since our previous survey. While some contacts reported plans to open plants and expand operations in the near future, a larger number of contacts reported plans to close plants or lay off workers. Firms in the steel product and machinery industries announced plans to open or expand facilities in the District. In contrast, firms in the auto parts, plastics, apparel, food, furniture, paper product, and electronic product industries reported plans to close plants within the District. Firms in the motor vehicle, plastics, and household appliance industries reported plans to conduct significant lay offs. Contacts in the plastics, primary metal, and raw material manufacturing industries reported slow orders.
The District's services sector continued to expand in most areas. Contacts in the freight transportation, water transportation, and traveler accommodation services industries reported plans to open new facilities or hire additional workers. In contrast, a contact in the financial services industry reported plans to lay off workers.
Real Estate and Construction
Home sales were mixed throughout the Eighth District. Compared with January 2006, January 2007 home sales were unchanged in St. Louis and Louisville but fell 2 percent in Little Rock and 2.7 percent in Memphis. Residential construction declined throughout the District. December 2006 year-to-date single-family housing permits fell in every metro area compared with the same period in 2005. Permits declined 28 percent in Louisville, 25 percent in St. Louis, and 12 percent in Memphis and Little Rock.
Commercial real estate market conditions continued to improve throughout the District. The 2006 fourth-quarter industrial vacancy rate declined in Memphis and Louisville over the third quarter, while the industrial vacancy rate increased in St. Louis. During the same period, the office vacancy rate declined in St. Louis, Memphis, Louisville, and Little Rock. Contacts in northeast Mississippi report that commercial development is strong. Contacts in west Tennessee reported that January 2007 commercial permits increased substantially over January 2006. In Louisville, contacts report that the outlook for the 2007 industrial market is positive with a few reservations, and contacts in St. Louis predict a healthy industrial market for 2007.
Banking and Finance
A survey of senior loan officers at a sample of District banks showed little change in overall lending activity during the fourth quarter of 2006. During this period, credit standards and demand for commercial and industrial loans remained basically unchanged for both large and small firms. During the same period, credit standards for commercial real estate loans tightened somewhat, while credit standards for residential mortgage and consumer loans remained basically unchanged. Demand for commercial real estate loans remained unchanged, while demand for both residential mortgage loans and consumer loans ranged from unchanged to moderately weaker.
Agriculture and Natural Resources
Despite extremely cold weather at the end of January, winter wheat is mostly in good condition throughout the District except in Missouri, where it is mostly in fair to poor condition. Reflecting increases in both prices and crop yields, the total value of all District field crops rose by 34 percent from 2005 to 2006. Arkansas, Illinois, Indiana, Kentucky, and Missouri had increases of at least 20 percent, while Tennessee had an increase of 12 percent. In contrast, the total crop value in Mississippi declined by 7 percent from 2005 to 2006.